F. Approval by the Court

Author:Roderick J. Wood
Profession:Faculty of Law. University of Alberta

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In order to be binding on the creditors, the court must also approve the plan. The court may not approve a plan if the creditors have rejected it. Under both the BIA and CCAA, one of the central issues is the plan’s fairness and reasonableness. However, the approach under the two statutes is not the same in all respects, so it is necessary to give separate consideration to the formulations that are employed. The fairness requirement under both statutes will be considered under the same heading.

1) Court Approval under the CCAA

Before approving or rejecting the plan, the court will consider the report of the trustee or monitor.102The CCAA provides that a court may sanction a plan that has been approved by the creditors. The CCAA does not provide any criteria to assist a court in deciding whether to approve the plan. The relevant considerations have been developed by the courts in a series of decisions dealing with court approval of a plan. The courts have set out the following principles for approving a plan:103· there must be strict compliance with the statutory criteria;

· there must be no unauthorized conduct; and

· the plan must be fair and reasonable.

The requirement of strict compliance with statutory criteria covers matters such as the insolvency requirement and the requirement that the total claims exceed $5 million. It also means that the correct procedure for the calling of meetings must have been followed and the votes correctly counted.104Disputes over whether particular parties had the right to vote or whether they were entitled to vote in a different class are sometimes delayed until the court hearing, and these issues sometimes are rendered moot if the resolution of the dispute does not affect the outcome. The court makes a series of orders under the CCAA

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in respect of a wide variety of matters. Compliance with these orders is of significance, since unauthorized conduct is one of the grounds for refusing to approve a plan.

2) Court Approval under the BIA

The BIA provides a different set of criteria that are to be applied by a court in deciding whether to approve a proposal. A court is directed to refuse a proposal if:105· the terms of the proposal are unreasonable; or

· the terms of the proposal are not calculated to benefit the general body of creditors.

The court is also directed to refuse approval of the proposal if one of the facts that would justify a refusal to grant an absolute discharge is established, unless the debtor provides reasonable security for the payment of not less than fifty cents on the dollar. A court may refuse to approve a proposal if it is established that the debtor has committed an offence under the BIA. Courts have indicated that, in deciding whether to approve a proposal, the court should consider the interests of the debtor, the interests of the creditors, and the interests of the public in maintaining the integrity of the insolvency system.106

3) Assessing Fairness and Reasonableness

Although the formulation of the tests for court approval under the CCAA and the BIA differs somewhat, the central question is the same. The court reviews the plan to determine if it is fair and reasonable. A court is not required to approve a plan that has been approved by each class of creditor. However, courts recognize that it is the creditors who bear the economic consequences of the success or failure of the restructuring proceedings, and their evaluation of the situation should not be dispensed with lightly. They also recognize that it is not their role to descend into the negotiating arena...

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